A Business Owner’s Guide to SBA 504 Loans
Small business owners are often in need of financing to purchase commercial real estate or major equipment. One option they may consider is an SBA 504 loan, which provides long-term, fixed-rate financing through a partnership between the U.S. Small Business Administration and approved lenders. This type of loan has become increasingly popular for businesses looking to acquire assets without taking on too much risk or debt burden.
The Basics
First, let’s look at the basics of SBA 504 loans. These types of loans can provide up to $5 million in financing for businesses and are offered through a partnership between the Small Business Administration (SBA) and a lender. The loan is structured so that the borrower has two separate mortgages: one from the SBA and one from the approved lender.
Qualifying for SBA 504 Loans
To be eligible for an SBA 504 loan, a business must meet certain criteria – including being in operation for at least two years, having revenues of no more than $15 million annually and occupying 51% of the space it seeks to purchase. In addition, the business must demonstrate that it has sufficient cash flow to cover its debt payments.
Risks to Consider
While the SBA 504 loan program has some attractive benefits, there are also a few drawbacks to consider before applying. First, the approval process is quite lengthy and involves multiple steps and paperwork – which can be off-putting for some potential borrowers. Additionally, because of the rigorous eligibility criteria, many small businesses may be ineligible to receive an SBA 504 loan.
Overall, the SBA 504 loan program is a great option for small businesses looking to purchase commercial real estate or major equipment without taking on too much risk. With long-term, fixed rate financing and two separate mortgages, this type of loan offers a unique way to finance your business’ growth.
